According to a March 22 letter from Fannie Mae, the purpose behind that is to make home buying more affordable for people who may not have large savings or help from family or friends. People with very small down payments will get a price break on their fees. So Fannie and Freddie would charge higher-risk borrowers more. The rationale is that the lower your credit score and the smaller your down payment, the higher the risk of you defaulting on your mortgage. Since these upfront fees are risk-based, they’re tied to credit scores and down payment amounts. Less Risky Borrowers Are Paying More In Mortgage Fees Here’s Why Many experts are calling foul on this change, as the higher fees are hitting people who are generally considered less risky. The big change is that, on a conventional mortgage, borrowers with down payments between 5% and 25% will pay more in fees than those who put down less than 5% of the home value. All other things being equal, fee percentages decline as credit scores rise. The person with a 760 credit score will be charged 0.5% of the loan amount in fees, while the person with a 660 credit score will be charged 1.625%. For example, consider two people, both of whom borrow the same amount and have a 5% down payment. The new price structure will continue to reward higher-credit-score borrowers with lower fees, contrary to recent reports. Depending on your loan amount, property type and the fee percentage that’s assessed, you could end up paying a few dollars more or a couple hundred dollars more each month. ![]() ![]() The fees are a percentage of your loan amount and can run anywhere from 0.125% to 2.875% on most mortgage loans. (Fannie Mae calls them “loan level price adjustment costs,” or LLPAs Freddie Mac simply refers to them as “credit fees.”) The agencies impose higher fees on borrowers they deem more likely to default on their mortgage based on factors like credit score and down payment. Beginning on May 1, Fannie Mae and Freddie Mac-two of the main providers of mortgage financing in the U.S.-are hiking their risk-based fees.
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